Comment: Privatization Romania - Are they serious?
The privatization of state industries is a major part of the financial deal that the International Monetary Fund IMF, the World Bank and the EU have with the government of Romania. Statements made by IMF representatives during their regular visits to Bucharest optimistically tell us that things are going well and that the Romanian government is meeting most of its commitments to the process that sees IMF and World Bank funds coming into the country.
However, the privatization programme is not ‘going well’ and it should be understood that this is a major problem for funding organizations who see themselves underwriting enterprises that continue to make huge losses and are accumulating spectacular levels of debt. That is not what the IMF or the World Bank are for.
The attempt to privatize the Oltchim chemical business last year was nothing but a fiasco. As yet not one single private investor has shown any interest in the national Postal service. Similarly, the only investors currently interested in becoming involved in the CFR Marfa privatization are those that have already been rejected by the government. And so it goes on, one failure after the other. Why?
Fundamentally, these are all loss-making businesses and are very unattractive to private investors who, of course, are looking to see a good return on their investments in the medium term. The terms offered by the government seem deliberately designed to repel serious business investment in these enterprises.
In the case of the Post, an up-front deposit of around EUR 150 million is required for a business that is 54 million Euro in debt and makes continued losses. This is not a proposal that will interest many people. It is clear that the business should be completely restructured in order to make money but only 51 percent of it is available, giving other interested parties within government 49 percent and considerable control over any planned restructuring. It looks like a waste of EUR 150 million to any sensible investor.
In the cases of CFR, CFR Marfa and Tarom, the business and management plans drawn up by the experts employed to prepare the companies for privatization were rejected by their respective boards of management; largely comprising people with vested interests appointed from government ministries. Watching these events unfold, private money will quickly understand that the instability and uncertainty present in the senior management structures of these businesses makes any serious thought of investment impossible.
The government seems not to be offering any incentives to investors who are expected simply to make a large down payment, deal with large levels of debt and undertake huge capital investment programmes and company restructuring simply to break even. There is no offer of initial tax breaks on profits, no easy access to development grant funding and no assistance with operational issues such as infrastructure development and training. It’s simply a case of ‘show us your money and then take this weight off our shoulders, with both hands tied behind your back’. I’m afraid that is not how real business works and, in contrast, we can see that investors are queuing up to get involved in mineral extraction where profits are assured.
I’ll say it again: loss-making businesses deep in debt and in a downward commercial spiral are not attractive investment opportunities. Make them attractive and then a deal may be possible. It isn’t rocket science…unless those in charge of the process are not genuinely interested in selling the businesses. Even loss making state-owned industries can provide a steady income for people focused only on their personal interests, if funding organizations are willing to keep signing cheques.
For sure, any restructuring of the Post or CFR Marfa will probably be a painful process for many of the people who work in those businesses. But what if those businesses simply cease to exist when the money runs out? How painful would that be for the whole country?
It really is time to get serious.
By Ronnie Smith, guest writer
(photo source: PhotoXpress)